The Reason Why Retained Earnings Have a Cost Equal to R_s

question 12

True/False

The reason why retained earnings have a cost equal to r_s is because investors think they can (i.e. ,expect to)earn r_s on investments with the same risk as the firm's common stock,and if the firm does not think that it can earn r_s on the earnings that it retains,it should pay those earnings out to its investors.Thus,the cost of retained earnings is based on the opportunity cost principle.

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Images created by capturing light on a light-sensitive medium, such as film or a digital sensor, often used for capturing moments or documenting information.

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